Coverage CounselorNavigating the Risks Facing Corporate Policyholders

In a recent decision, a New York appellate court held that a business owner’s notice to its CGL carrier regarding a settlement with an individual injured at its manufacturing plant was 9 months too late. Thus, despite potentially having coverage for the incident, the insured recovered nothing and ended up paying over $1.5 million.

In LaFarge Building Materials, Inc. v. Harleysville Insurance Company of New York, No. 526033, 2018 WL 5659750 (New York 2018), David O’Dell was working as a millwright for Adirondack Mechanical Services (“AMS”). In July of 2005, O’Dell injured his back while doing work for AMS at plaintiff LaFarge’s cement manufacturing plant.

In March of 2008, O’Dell filed a personal injury action against LaFarge and others. In January of 2009, roughly 9 months after being named as a defendant in O’Dell’s personal injury action and defending itself in that action, LaFarge sent a letter to Harleysville, asking Harleysville to provide a defense and indemnification. According to LaFarge, it was a named insured under AMS’s CGL policy and was entitled to both a defense and indemnification.

Harleysville disclaimed coverage, stating that LaFarge failed to notify it of the claim “as soon as practicable” as required by the policy. LaFarge settled its claim with O’Dell for nearly $1.5 million dollars and then sued Harleysville to recover what it had paid. According to LaFarge, Harleysville’s refusal to provide a defense and indemnity was improper.

Harleysville ultimately prevailed on the ground that LaFarge’s notice was untimely. According to Harleysville, the policy required that LaFarge provide notice “as soon as practicable” and LaFarge failed to do just that. LaFarge argued that its notice was not late because it did not realize that it was an insured under AMS’s CGL policy until that time. It also argued that it was diligent in its efforts to ascertain coverage and, as a result, its nine month delay in providing notice was not unreasonable.

The court disagreed with LaFarge. According to the court, LaFarge had enough information that it should have been able to discover sooner that there was coverage available. The court’s decision was based on its findings that LaFarge: (1) knew that an “occurrence” had taken place at its facility; (2) was aware that the occurrence involved one of its contractors; (3) had located the certificate of liability insurance listing it as a holder and Harleysville as the insurer; and (4) it knew that its standard purchase order required contractors, like AMS, to name it as an additional insured on their liability insurance policies.

Although this case was decided under New York law which, for the policy involved in this case, did not require prejudice to be established in order to successfully assert a late notice defense, it stands as a good reminder that businesses should be aware of and actively pursue all avenues of potential insurance coverage, including those instances in which they may be named as an “additional insured” under the policy of another. Had LaFarge simply followed up on its own requirement that it be named as an additional insured under the policy of its subcontractor, asked for a copy of the policy, and kept a record of the coverage, it may have avoided paying out of pocket over $1.5 million to O’Dell for his back injury.